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Updated July 28, 2008 12:01 a.m. ET

Home Truths

To the Editor: The July 14 "Bottom's Up" cover story contains a number of statistics showing that the U.S. housing market may be stabilizing, but I suspect that one -- the inventory of unsold homes -- should be taken with a grain of salt.

Just as the labor market contains "discouraged workers" who choose not to look for a job and thus aren't in the unemployment statistics, there likely are a large number of homeowners who want to sell, but since they don't have to do so, aren't putting their homes on the market. This pent-up supply, much greater than normal, will be offered for sale as the market stabilizes, keeping the inventory of unsold homes high and the housing market bumping along the bottom for quite a while.

Charlie Dorris San Francisco

Medical Mission

To the Editor: Regarding the July 14 Editorial Commentary ("Bring Back Harry and Louise"): 80% of the physicians in our area (Colorado Springs, Colo.) don't accept new patients who are on Medicare. Geriatric medicine is rapidly becoming one of those jobs that Americans won't do.

What reasonably intelligent individual would enter a profession where wages are determined by politicians and bureaucrats, payment is administered by government clerks and procedures are challenged by technicians who haven't practiced within the profession?

Our society can't afford to continue to pay the medical expenses for those fortunate enough to find a medical professional willing to accept them as patients. Medicare, in its present form, should be phased out as soon as possible and replaced with the expanded use of medical or health savings accounts, combined with private major-medical insurance policies. For those who can't afford a medical savings account, there could be a means-tested welfare program.

Peter A. Lewis Larkspur, Colo.

To the Editor: The Editorial Commentary gave the faulty impression that the costs and quality of universal health care would be worse than our present system's.

The U.S. pays more than other countries for its health care, yet gets less for its payment, and no other modern country lacks universal health care.

I lived in Canada most of my adult life and found that, despite what health insurance companies would have you believe, the Canadian system is better and more cost-effective overall.

Chris Pool Sedona, Ariz.

No Matter Who Pays

To the Editor: The July 14 Fund of Information column, which bore the headline "SEC Report on Rating Agencies Falls Short," criticized the "issuer-pays" business model used by Standard & Poor's and other ratings agencies and implied that other models avoid conflicts of interest.

The issuer-pays model enables us to make our ratings widely available to the public, free of charge and in real time. It also allows us to publish a large volume of non-ratings-related analysis on a wide array of subjects, for which we aren't compensated. The entire market benefits from this transparency and broad distribution of data.

The "subscriber-pays" model allows access only to those willing to pay a subscription fee. It poses its own potential conflict, with investors attempting to pressure agencies for ratings that best suit their preferences.

Each model carries its own potential conflicts of interest. What is important is that these potential conflicts are managed effectively to preserve the independence of the rating process.

Quantification of Risk

It is unjustified to classify all quants as being the same. It is true that the market remains very challenging for those quant managers using value-oriented factors in an attempt to produce alpha [performance that beats the market's], but many quant firms have diversified models that emphasize other factors, too. For those of us using more momentum, year-to-date relative performance is actually quite strong.

Quant investing is one way to invest for the long term, but no strategy works in every market. To suggest that quant investing is dead as a result of a difficult 2007 is similar to saying what some pundits did in March 2000: that value investing was dead.

To the Editor: Your article says: "With so much money riding on the same risk model, quants found themselves all exposed to the same stocks last summer. In the rush for the exits, the Barra models proved poor guides." This analysis confuses what we at Barra do: We do not create the world of risk; we make maps of it.

To the extent that quant (and other) managers pursued similar strategies, they were indeed exposed to similar stocks and to common risks.

Barra's models revealed those underlying risk characteristics. Our models successfully picked up these common risks, explaining much of what drove stocks during this volatile period.

If anything, the past year's events underscore the importance of understanding the sources of portfolio risk and the value of using a factor model fully. But we haven't removed risk from investing.

David Brierwood Chief Operating Officer MSCI Barra London

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